Sustainable Development of Renewable Energy Mini-grids for Energy Access: A Framework for Policy Design
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LBNL-‐6222E
Sustainable
Development
of
Renewable
Energy
Mini-‐grids
for
Energy
Access:
A
Framework
for
Policy
Design
Ranjit
Deshmukh
Juan
Pablo
Carvallo
Ashwin
Gambhir
March
2013
Lawrence
Berkeley
University
of
California
Prayas
Energy
Group
National
Laboratory
Berkeley
Pune
Lawrence
Berkeley
National
Laboratory
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Authors:
Ranjit
Deshmukh
Lawrence
Berkeley
National
Laboratory
Energy
and
Resources
Group,
University
of
California
at
Berkeley
rdeshmukh@lbl.gov
Juan
Pablo
Carvallo
Energy
and
Resources
Group,
University
of
California
at
Berkeley
jpcarbod@berkeley.edu
Ashwin
Gambhir
Prayas
Energy
Group
ashwin@prayaspune.org
March
2013
Principal
Investigators:
Amol
Phadke,
Ph.D.
Deputy
Leader
(Acting),
International
Energy
Studies
Group
Environmental
Energy
Technologies
Division
Lawrence
Berkeley
National
Laboratory
Daniel
Kammen,
Ph.D.
Class
of
1935
Distinguished
Professor
Energy
and
Resources
Group
and
Goldman
School
of
Public
Policy
Founding
Director,
Renewable
and
Appropriate
Energy
Laboratory
University
of
California
at
Berkeley
Shantanu
Dixit
Coordinator
Prayas
Energy
Group
ACKNOWLEDGEMENT
The
authors
would
like
to
acknowledge
Dr.
Arne
Jacobson,
Richard
Engel,
Veena
Joshi,
Dr.
Dan
Kammen,
Dr.
S.P.
Gon
Chaudhuri,
Dr.
Chris
Greacen,
María
Gómez,
Meg
Harper,
Hari
Natarajan,
Upendra
Bhatt,
Nikhil
Jaisinghani,
Christopher
Neidl,
Daniel
Schnitzer,
and
Deepa
Shinde-‐Lounsbury
for
reviewing
drafts
of
this
report
and
providing
useful
comments.
All
views
and
errors
expressed
in
this
report
are
the
sole
responsibility
of
the
authors.
TABLE OF CONTENTS 1 INTRODUCTION 1 1.1 Access to Electricity 1 1.2 Mini-‐grids for Electricity Access 2 1.3 Importance of Policy Framework 3 2 FRAMEWORK 4 2.1 Elements of Sustainability 4 2.2 Policy Components 5 3 COUNTRY POLICIES AND PROGRAMS 7 3.1 Sri Lanka 7 3.2 Nepal 7 3.3 China 8 3.4 India 8 3.5 Tanzania 9 3.6 Cambodia 10 3.7 Brazil 10 4 POLICY ANALYSIS 11 4.1 Institutional Structure and Governance 11 4.1.1 Roles in Mini-‐Grids 11 4.1.2 Licensing and Regulations 14 4.1.3 Training and Capacity Development 15 4.1.4 Monitoring and Verification 16 4.2 Technical 17 4.2.1 Surveys 18 4.2.2 Standards 18 4.2.3 Grid Integration 19 4.3 Financial Incentives, Financing and Tariffs 20 4.3.1 Financial Incentives and Subsidies 21 4.3.2 Financing and Investment 23 4.3.3 Tariffs and Revenue Streams 23 5 CONCLUSION 26 REFERENCES 27 i
INDEX OF FIGURES Figure 1: Population without access to electricity in 2010 (IEA 2012). ....................................................... 1 Figure 2: Elements of sustainability for assessing renewable energy-‐based mini-‐grid policies .................. 4 Figure 3: Categories of renewable energy-‐based mini-‐grids policy framework .......................................... 5 Figure 4: Grid interconnection and islanding of mini-‐grids ....................................................................... 20 Figure 5: Financial flows for a mini-‐grid system ........................................................................................ 21 ii
ACRONYMS ANEEL – Brazilian Electricity Regulatory Agency CREDA – Chhattisgarh Renewable Energy Development Agency DANIDA – Denmark’s Development Cooperation DSM – Demand-‐Side Management ESAP -‐ Energy Sector Assistance Program ESD – Energy Services Delivery EWURA – Energy and Water Utilities Regulatory Authority of Tanzania MNRE – Ministry of New and Renewable Energy M&V – Monitoring and Verification NGO – Non-‐governmental Organizations NORAD – Norwegian Agency for Development Cooperation O&M – Operations and Maintenance RE – Renewable Energy REAP – Renewable Electricity Action Plan REDP -‐ Rural Energy Development Program REE – Rural Electricity Enterprises REF – Rural Electrification Fund RERED – Renewable Energy for Rural Economic Development RGGVY –Rajiv Gandhi Village Electrification Program RVE – Remote Village Electrification programme SPP – Small Power Producer SPD – Small Power Distributor TANESCO – Tanzania Electric Supply Company TEDAP -‐ Tanzania Energy Development and Access Project UNDP – United Nations Development Programme VESP – Village Energy Security Programme iii
1 INTRODUCTION
1.1 ACCESS
TO
ELECTRICITY
Over
1.25
billion
people
in
the
world,
do
not
have
access
to
electricity
(Figure
1)
[1].
The
lack
of
access
to
electricity
is
most
acute
in
countries
in
developing
Asia
and
sub-‐Saharan
Africa.
Further,
the
majority
of
this
unelectrified
population
lives
in
rural
areas.
According
to
the
International
Energy
Agency,
the
average
electrification
rate
(in
terms
of
population)
across
the
developing
countries
is
76%,
with
approximately
92%
in
urban
areas
and
only
around
64%
in
rural
areas.
Figure
1:
Population
without
access
to
electricity
in
2010
(IEA
2012).
The
benefits
of
electricity
access
are
well
recognized
e.g.
longer
study
hours
for
children,
a
reduction
in
domestic
work
burden
on
women
by
providing
access
to
appliances,
increased
economic
productivity,
entertainment
and
access
to
enhanced
healthcare,
government
and
other
services.
Consequently,
the
governments
of
many
countries
have
made
the
provision
of
electricity
access
their
top
priority.
The
definitions
of
electricity
access
vary
widely
by
country
and
region,
including
metrics
such
as
the
number
of
lights
provided
to
a
household,
specific
amount
of
energy
available,
or
the
number
of
households
and
institutions
that
are
provided
an
electric
connection
in
a
community.
In
this
report,
we
refrain
from
narrowly
defining
electricity
access
and
refer
to
it
as
a
spectrum
ranging
from
access
to
affordable
and
reliable
lighting
to
power
availability
for
commercial
and
motive
loads.
The
predominant
approach
that
most
governments
take
to
increase
electricity
access
has
been
central
grid
extension.
Several
studies,
however,
point
to
the
high
costs
of
central
grid
extension
to
rural
populations
that
can
be
sparse
and
remote
[2],
[3].
Low
population
density
and
a
relatively
poor
consumer
base
with
low
electricity
consumption
act
as
disincentives
for
traditional
utilities
to
provide
electricity
in
rural
areas.
Even
after
connecting
to
the
grid,
rural
consumers
may
not
be
ensured
the
1
same
level
of
reliable
access
to
electricity
their
urban
counterparts
enjoy,
especially
in
countries
where
utilities
are
struggling
with
insufficient
generation
capacity,
excessive
losses
and
high
cost
of
transmission
and
distribution
infrastructure
maintenance
per
customer
served
in
remote
areas
[2]–[5].
Hence,
although
central
grid
extension
has
been
successful
in
providing
reliable
access
to
electricity
in
some
countries
like
China,
Thailand
and
parts
of
Latin
America,
it
has
been
a
challenge
to
implement
in
other
parts
of
the
developing
world
[6].
As
an
alternative,
several
countries
are
pursuing
distributed
generation
through
mini-‐grids,
solar
home
lighting
systems
and
off-‐grid
lighting
products
as
an
interim
or
a
long-‐term
solution
to
provide
electricity
access.
1.2 MINI-‐GRIDS
FOR
ELECTRICITY
ACCESS
Mini-‐grids
can
be
an
important
alternative
to
or
enhance
the
effectiveness
of
central
grid
extension
to
increase
access
to
reliable
electricity
services
in
developing
economies.
Mini-‐grids
are
defined
as
one
or
more
local
generation
units
supplying
electricity
to
domestic,
commercial,
or
institutional
consumers
over
a
local
distribution
grid.
They
can
operate
in
a
standalone
mode
and
can
also
interconnect
with
the
central
grid
when
available.
Although
mini-‐grids
can
use
diesel
generators,
renewable
energy-‐based
mini-‐grids
(henceforth
referred
to
as
RE
mini-‐grids)
use
electricity
generation
technologies
that
utilize
locally
available
renewable
energy
sources
like
solar,
wind,
biomass,
and
run-‐of-‐river
hydro,
thus
avoiding
local
and
global
pollution.
These
generation
technologies
include
solar
photovoltaic
and
wind
turbines
with
battery
storage,
biomass
gasifiers
and
biogas
digesters
with
internal
combustion
engines,
micro
and
mini-‐hydro
turbines,
and
hybrid
systems
(a
combination
of
more
than
one
generation
technology).
Due
to
their
low
or
often
zero
fuel
costs
(except
potentially
in
the
case
of
biomass-‐based
systems),
RE
mini-‐grids
can
be
more
cost
effective
than
those
utilizing
diesel
generators
or
kerosene
based
lighting.
The
latter
have
little
capital
expenditure,
but
have
relatively
high
fuel
costs,
volatile
prices,
and
logistic
limitations.
RE
mini-‐grids
have
distinct
advantages
over
central
grid
extension
and
other
decentralized
energy
options
in
providing
access
to
reliable
and
affordable
electricity.
1. Compared
to
central
grid
extension,
RE
mini-‐grids
can
be
less
expensive
due
to
lower
capital
cost
of
infrastructure
(depending
on
distance)
and
lower
cost
of
operation
by
avoiding
transmission
and
distribution
losses
[3].
2. In
countries
with
power
shortages,
electricity
supply
through
the
central
grid,
especially
in
rural
areas,
may
not
be
reliable.
In
such
regions,
RE
mini-‐grids
that
can
be
designed
and
operated
effectively,
can
be
more
reliable
than
the
central
grid
in
providing
electricity
access
and
can
ensure
local
energy
security.
3. Mini-‐grid
developers
have
the
potential
to
access
capital
beyond
the
traditional
power
sector,
and
may
be
able
to
provide
quicker
access
to
electricity
than
central
grid
extension
that
may
be
prone
to
bureaucratic
hurdles
and
slow
implementation.
4. Unlike
other
decentralized
energy
options
like
solar
home
lighting
systems
and
off-‐grid
lighting
products,
mini-‐grids
(depending
on
their
size)
can
provide
electricity
to
not
only
residential
loads
like
lighting
and
phone
charging,
but
also
to
commercial
loads
like
mills
and
oil
presses.
2
5. RE
mini-‐grid
developers
have
strong
incentives
to
pursue
demand-‐side
management,
to
keep
capital
cost
of
generation
equipment
low.
6. Development
and
operation
of
mini-‐grids
can
create
local
jobs.
However,
there
are
also
several
challenges
to
successfully
deploying
RE
mini-‐grids
and
especially
to
ensuring
their
long-‐term
sustainability.
These
challenges
include
but
are
not
limited
to
high
up-‐front
capital
costs,
low
capacity
factors,
often
higher
residential
tariffs
compared
to
central
grid
consumers,
insufficient
financing
support
and
investment,
technology
failures,
lack
of
effective
institutional
arrangements
to
ensure
reliable
and
efficient
operation
and
maintenance
over
time, lack
of
mechanisms
to
address
grievances,
and
uncertainty
in
the
face
of
possible
future
central
grid
extension.
Well-‐designed
policies
and
appropriate
institutional
arrangements
along
with
effective
financing
mechanisms
can
address
many
of
these
challenges
and
enable
the
successful
and
sustainable
deployment
of
renewable
energy-‐based
mini-‐grids.
1.3 IMPORTANCE
OF
POLICY
FRAMEWORK
While
several
governments
have
made
the
provision
of
electricity
access
their
priority,
their
policies
have
tended
to
focus
on
electrification
through
central
grid
extension,
and
its
implementation
through
traditional
utilities.
Decentralized
mini-‐grids,
in
spite
of
their
advantages,
have
received
much
less
importance.
Mini-‐grid
deployment
has
often
been
left
to
private
developers
and
non-‐governmental
organizations
with
government
support
limited
to
the
provision
of
capital
subsidy.
When
governments
have
been
in
charge
of
developing
mini-‐grids,
they
have
often
tended
to
focus
on
installation
and
often
haven’t
provided
adequate
continued
support
for
the
systems.
In
the
past
couple
of
decades,
there
has
been
a
push
to
develop
RE
mini-‐grids
in
many
countries
including
Brazil,
Cambodia,
China,
India,
Nepal,
Sri
Lanka
and
Tanzania.
While
there
have
been
some
successful
mini-‐grid
programs,
there
have
also
been
some
failures.
Inadequate
institutional
support
in
combination
with
technical,
economic
and
social
issues
have
resulted
in
many
unsustainable
or
defunct
mini-‐grid
systems.
If
mini-‐grids
are
to
play
a
significant
role
in
providing
access
to
reliable
and
affordable
electricity,
a
robust
policy
framework
is
essential.
While
there
are
several
studies
recommending
best
practices
for
rural
off-‐grid
electrification,
we
aim
to
contribute
by
devising
a
framework
that
can
successfully
account
for
and
include
those
policy
practices
to
make
sure
they
interact
coherently
among
themselves
and
with
the
existing
regulations.
We
focus
on
the
technical,
economical,
financial,
and
social
sustainability
of
mini-‐grids,
in
addition
to
assessing
scalability
and
equity
issues,
in
order
to
understand
the
key
components
that
should
constitute
a
robust
mini-‐grid
policy.
We
recognize
that
each
policy
component
may
have
different
ways
to
be
designed
and
implemented.
To
illustrate
the
options
that
policy-‐makers
may
have
to
effect
the
sustainable
deployment
and
operation
of
RE
mini-‐grids,
we
provide
examples
from
actual
policies
and
programs
from
the
aforementioned
countries.
The
policy
framework
that
we
present
would
be
useful
to
policymakers
to
formulate
an
integrated
and
holistic
policy
for
RE
mini-‐grids
to
be
a
significant
option
in
the
provision
of
reliable
and
affordable
access
to
electricity.
3
2 FRAMEWORK
Government
policy
plays
a
significant
role
in
the
development
of
a
sector,
from
setting
rules
and
standards
to
providing
incentives
and
enforcing
penalties.
A
robust
mini-‐grid
policy
can
significantly
impact
the
development
of
the
mini-‐grid
sector.
Based
on
our
own
experience
as
well
as
relevant
literature,
there
are
different
components
of
a
mini-‐grid
policy,
all
of
which
are
important
for
its
success.
However,
it
is
not
uncommon
that
policy
makers
focus
on
a
subset
of
these
components,
leaving
their
policies
somewhat
incomplete
and
therefore
impeding
the
deployment,
operation,
and
long-‐term
sustainability
of
mini-‐grid
projects.
In
this
report,
we
build
a
framework
upon
which
successful
and
sustainable
mini-‐grid
policy
can
be
designed.
2.1 ELEMENTS
OF
SUSTAINABILITY
First,
we
identified
a
set
of
elements
that
define
sustainability
where
experience
indicates
that
their
integration
in
mini-‐grid
development
will
help
to
ensure
that
mini-‐grids
play
a
critical
successful
role
in
the
long-‐term
provision
of
electricity
access
(Figure
2).
Using
these
elements
of
sustainability,
we
assess
the
different
components
of
a
mini-‐grid
policy
through
different
lenses
to
inform
the
concerns
of
all
stakeholders,
including
mini-‐grid
consumers
(community),
project
developers,
government,
utilities
and
financiers.
Economic
Financial
viability
over
long-‐term,
affordable
tariffs
Equity
Technical
Parity
with
central
Long-‐term
grid
consumers,
operaoon,
minimal
universal
access
downome
Sustainability
Environmental
Social
Minimal
environmental
Community
footprint
involvement,
local
context
Scalability
Potenoal
for
growth
Figure
2:
Elements
of
sustainability
for
assessing
renewable
energy-‐based
mini-‐grid
policies
Economic
sustainability
includes
affordable
tariffs
for
consumers
while
ensuring
financial
viability
of
the
project
over
the
long
term
with
adequate
revenue
to
cover
operational
expenses,
liabilities,
and
profit.
Technical
sustainability
ensures
the
reliable
operation
of
the
mini-‐grid
system
over
its
expected
lifetime
with
minimal
downtime.
We
define
social
sustainability
to
include
the
level
of
community
involvement
and
how
well
the
policy
ensures
that
the
mini-‐grid
system
caters
to
the
local
context.
Scalability
is
4
incorporated
to
include
a
dynamic
component
in
the
evaluation,
and
to
assess
the
ability
of
the
policy
to
affect
growth
of
the
mini-‐grid
sector.
An
environmental
perspective
is
applied
to
assure
future
generations
are
not
made
worse
off
by
present
electrification
efforts
and
resources
are
not
depleted.
Finally,
we
include
an
equity
lens
to
assess
the
distributional
aspects
of
a
policy
and
how
well
the
policy
performs
to
ensure
universal
access
to
electricity.
2.2 POLICY
COMPONENTS
A
comprehensive
policy
designed
to
guide
the
development
of
mini-‐grid
systems
as
a
significant
option
for
providing
electricity
access
would
address
three
broad
categories
–
1)
institutional
structure
and
governance,
2)
technical
standards
and
surveys,
and
3)
financial
incentives,
financing
and
tariffs.
We
present
these
categories
and
the
policy
components
in
each
of
these
categories
that
in
our
view
are
essential
for
a
robust
policy
to
foster
mini-‐grid
development
(Figure
3).
In
this
report,
we
use
the
elements
of
sustainability
discussed
above
to
analyze
these
different
policy
components
using
examples
from
different
countries.
Insotuoonal
structure
Technical
standards
Financial
incenoves,
and
governance
and
surveys
financing
and
tariffs
Defined
roles
for
community,
Standards:
Quality
of
Public
support:
Capital
and
government
and
private
equipment,
construcoon,
ongoing
subsidies
and
developer
service.
incenoves
Licensing
and
regulaoons
Resource
surveys
and
Financing:
Loans,
banking,
potenoal
site
studies
channeling
aid
and
grants.
Training
and
capacity
building
Grid
interconnecoon
and
islanding:
Mini-‐grids
as
part
Revenue
streams:
Retail
and
Monitoring
and
verificaoon
of
the
larger
system
wholesale
tariffs
Figure
3:
Categories
of
renewable
energy-‐based
mini-‐grids
policy
framework
It
is
essential
for
the
long-‐term
sustainability
of
a
mini-‐grid
system
to
define
clear
roles
and
responsibilities
for
all
entities
including
the
community,
government,
and
private
developer
in
a
policy,
in
terms
of
ownership,
development,
and
operation
and
maintenance.
The
role
of
community
in
all
stages
of
mini-‐grid
development
and
operation
is
critical
for
taking
local
context
into
account
and
ensuring
that
community
members’
needs
are
met.
Licensing
and
regulations
can
ensure
quality
of
service
and
could
achieve
pro-‐poor
policy
goals
by
ensuring
affordable
tariffs.
Training
and
capacity
building
of
all
stakeholders
including
the
local
community,
government
and
utility
officials,
project
developers
and
operators
are
important
for
long-‐term
sustainability
and
scalability
of
mini-‐grids.
Monitoring
and
verification
can
ensure
quality
of
service
and
equitable
access
to
electricity,
as
well
as
facilitate
mid-‐course
corrections
to
overall
programs.
5
In the technical category, standards for quality of design, equipment, construction, and service can facilitate long-‐term reliable operation of mini-‐grids. Resource surveys can help in identifying sites and reduce additional costs to developers. Grid-‐interconnection and islanded operation standards and policy mechanisms could reduce the uncertainty amongst mini-‐grid project developers and investors regarding their fate in the event of central grid extension. In the financial category, government and international donor subsidies and incentives can prove critical in reducing the upfront costs of RE mini-‐grids and ensure operation over their expected lifetime. Financing and investment include loans and equity investment, essential for financial viability and scalability of mini-‐grids. Finally, it is important to analyze the revenue streams of the mini-‐grids that include consumer and wholesale tariffs beyond external financial support. In the following sections, we briefly describe the policies and programs of seven countries, and then analyze the different components of their policies and programs through the lenses of the various elements of sustainability. 6
3 COUNTRY POLICIES AND PROGRAMS In this report, we highlight examples from seven countries – Sri Lanka, Nepal, China, India, Tanzania Cambodia, and Brazil. This section provides only a brief background on the policies and programs implemented in each of the countries. The analysis of these policies and programs is provided in section 4. 3.1 SRI LANKA Efforts for off-‐grid electrification in Sri Lanka can be traced back to the 1940s with the deployment of over 500 micro-‐hydro facilities to provide energy services for tea plantations, but it wasn’t until the early 1990s when these systems were applied to village level electrification efforts by private actors and NGOs [10]. The Energy Services Delivery program, ESD, launched in 1997 by the Government of Sri Lanka and the World Bank provided output-‐based grants and financing for micro-‐hydro mini-‐grids and solar home based systems and injected over US$45 million to serve 22,000 households [11]. Its successor, the Renewable Energy for Rural Economic Development project, RERED, launched in 2002, disbursed over US$120 million to continue building capacity and support private sector investment, achieving by 2008 the electrification of more than 6,000 households supplied by over 100 micro-‐hydro mini-‐grids. Most notably, the ESD/RERED program enabled communities to build, own, maintain, and operate their systems by boosting the cooperative business model, providing training, and consultancy technical assistance, and channeling funds through existing commercial banks [12]. The Sri Lanka experience is relevant due to the decisive role that decentralized private and non-‐ governmental organization efforts had in pushing deployment of mini-‐grids. It also highlights the need for a government to adjust existing policies to harmonize off-‐grid and on-‐grid schemes, reduce overlap, and increase their efficiency [12]. Finally, the focus on human resource development proved instrumental to spur a self-‐sustainable thriving private market for renewable energy sourced energy services in the region [11]. At the same time, it is important to note the large amount of support provided by external donor organizations to develop the sector. 3.2 NEPAL Although micro-‐hydro development has a long history in Nepal since the 1960s, the two main recent programs relevant to mini-‐grid development are the Rural Energy Development Program (REDP) and the Energy Sector Assistance Program (ESAP). REDP, an initiative of the Government of Nepal and UNDP, played a crucial role in the development of Nepal’s distributed generation program from 1996 to 2011. Under REDP, 317 village micro-‐hydro installations with a cumulative capacity of 5814 kW were installed and approximately 58,000 households were electrified [13]. REDP focused on building institutional and technical capacity by community organization and training. ESAP was established in 1999 with support from the Danish and Norwegian development agencies, DANIDA and NORAD, and the Government of Nepal to establish local support structures for micro-‐hydro projects, assistance in formulating national policies, and developing quality assurance standards and guidelines. Further, the rural energy fund, 7
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